Fed Sees Downside Risks

Trouble For Congress

Did anyone think it would be that easy for the government to pass a stimulus? The Republican proposal is $8 billion more than the bipartisan agreement. Plus, it got rid of liability protection, but that wasn’t enough for the Dems because the GOP got rid of the part of the plan which is unemployment benefits. The GOP’s plan calls for $600 in payments per person and child but slashes unemployment funding from $180 billion to $40 billion. We can see how the Georgia Senate election goes and see if that changes anything for the future. 

It’s interesting that the bond market and value stocks didn’t react to this news and growth stocks fell. Anyone saying stocks fell because of this snag in negotiations was wrong. The good news is that the GOP will probably come up with another proposal since both sides are still open to getting something done. The GOP could easily get rid of the $600 checks and give people $100 to $300 per week in unemployment benefits.

Conversion Rate To Permanent

In the November labor report, the number of permanently laid off people increased, but it wasn’t up much. We are quite close to this peak, but it will probably still increase in December and January. After those reports come out, we can do the final tallies on the impact of the COVID-19 recession. That's assuming there will be some health and economic benefits from the vaccines evident in February. It all comes down to vaccine distribution.

In the week of December 5th, initial unemployment claims are expected to only rise from 12,000 to 724,000. The initial reaction to last week’s report was that it was helped by Thanksgiving. These estimates only see a small increase, but claims may rise more than this.

The chart above gives us more information on the state of permanent layoffs. As you can see, the conversion rate to permanent layoffs is still near where it was at the peak of the last cycle. Specifically, it is the percent of non-permanent non-employed workers who became permanent layoffs in the following month. 

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